How Much Money Do You Need to Buy a Condo?

The amount needed for a condo depends largely on your lender.

The amount needed for a condo depends largely on your lender.

Condominiums are typically a more affordable housing option for homebuyers. They make efficient starter homes for first-time buyers and allow empty-nesters to downsize with less property maintenance. As a condo buyer, you have the upfront costs of getting the mortgage and the recurring costs of owning, such as homeowners association fees. It is important to consider all costs when figuring out how much money you need to buy a condo.

Down Payment

Most home buyers need a mortgage to finance their condo purchases, and lenders typically require a down payment. The size of your down payment depends on your lender and loan program. To get a condo loan with the Federal Housing Administration, you'll need at least 3.5 percent of the sale price. To get a conventional loan, you'll need between 5 and 20 percent. Certain loans, such as Department of Veterans Affairs loans for military service members, require no down payment.

Closing Costs

Condo buyers must pay closing costs in addition to a down payment. The costs include origination fees, or points, associated with the loan and settlement fees for title and escrow services. The costs are largely based on the condo sale price and your loan amount, so generally, the more expensive the condo, the more you pay in closing costs. The average closing costs for a sale price of $200,000 was $3,754 -- less than 2 percent -- as of mid 2012, according to Bankrate.com.

Monthly Payment

To buy a condo, you must show the lender you can afford to make the monthly payment, including mortgage principal, interest, taxes and insurance. Governing bodies, known as homeowners associations, or HOAs, add to the cost of owning a condo. Owners must pay monthly dues for services such as building and common area maintenance, limited hazard insurance for the building and other amenities. Lenders typically require this payment to remain within benchmark debt-to-income ratios. Conventional lenders ideally want your condo payment to be within 28 percent of your gross monthly income, whereas the FHA allows 31 percent or more.

Considerations

To help ensure that your condo does not end up costing you more than you bargained far, it is important to analyze the HOA's finances. HOAs unprepared to deal with repairs can raise fees on owners. Condo owners pay into a reserve fund for replacement and repair of items such as roofs, roads and common area equipment. In general, the older the complex, the more an HOA must have in its reserve fund to meet costs. Also, complexes with high foreclosure rates and unit owners who are behind on their dues can cause your fees to shoot up. You may request that the HOA provide answers about its financial status before you buy a condo.

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